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Books on India
REPUBLICAN REFERENCE
Area (sq.km)
3,287,590
Population
1,049,700,118
Capital
New Delhi
Currency
Irdian Rupee (INR)
President
Abdul Kalam
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Update No: 013 - (25/02/05)
India-Pakistan Relations
Indian External Affairs Minister, Natwar Singh's visit to Islamabad on
February 16 was the first official bilateral foreign visit by a foreign minister
since 1989. The outcome of the talks with Pakistani diplomats was successful
with both countries finalizing a deal on the symbolic Srinagar-Muzzafarabad
cross-border bus service. This bus service is scheduled to begin from April 7,
2005. The agreement reached by diplomats of the two countries has spurred the
peace process which had fallen into a slump for the last few months. Both sides
also engaged each other in working out agreements that seek to reduce nuclear
risk and improve the situation of civilian prisoners. Pakistan's Foreign
Minister Khurshid Mahmud has indicated his faith in these agreements; a sign
that people of both countries should expect facilitation in bilateral dialogue
in the near future. Other positive initiatives include a cricket match between
India and Pakistan at the end of this month in Mohali, Chandigarh. India has
invited Pakistani cricketers to play on their home ground and visa rules have
been relaxed for about 7000 Pakistani spectators who will also arrive in India.
With all the anticipation of what the agreements might portend for the
fate of these two countries, the Kashmir issue in the shadow of nuclear weapons
still remains of paramount importance. Until and unless, both countries come to
grips with the situation in Kashmir and the methods that can help in terminating
the incessant conflict, it may be hard to pin hopes too high. One factor that
has constantly plagued the relations between two countries is New Delhi's
apprehensions about whether General Pervez Musharraf's peace-keeping initiatives
are nothing more than empty gestures. Islamabad has much the same concerns about
India. So while these agreements are definitely a step in the right direction,
they are but little steps on a long and elusive road to peace.
Politics
Campaigning for the second phase of assembly elections ended on February 13
in the states of Bihar and Jharkhand. Prime Minister Manmohan Singh on his visit
to Jharkahand criticized the BJP government's failure in developing the state,
particularly the deteriorating law and order situation. In a statement released
to the Indian Press, Singh claimed that "some political parties are trying
to divide the society on Mandir-Masjid issue. Such attempts will not help the
country to progress. Such forces will only push the country backwards." The
Congress's success in the assembly polls in these two states does not provide a
very bright picture. There has been a lot of infighting between Congress allies.
The Congress is contesting 80 of Bihar's 243 seats in alliance with Lalu
Prasad's RJD and Ram Vilas Paswan's Lok Janshakti Party (source: NDTV.com)
According to recent exit polls in India, there is a strong possibility of a
"Hung" Parliament; a situation where no single party is able to garner
a clear majority in the assembly. Prime Minister Manmohan Singh has called for
greater transparency in the conduct of elections to make the process as
democratic as possible. This is because states like Bihar and Jharkhand are well
known for engaging in various electoral malpractices.
Economy
The month of February has been rather volatile for the stock market with the
Indian Sensex recording significant highs and lows. Also, there has been some
controversy over the Indian government's announcement to allow foreign direct
investment in the telecom sector. The critics who belong to parties like the
Communist Party of India (CPI) argue that the government's move to protect FDI
in the telecom sector is unfair given the negligence in like development and
poverty. They believe that development accords a higher priority than
telecommunications. The Financial Budget to be announced on February 27, will
focus on such issues and strongly impact the government's economic policies this
year.
In a bid to reform the oil and gas sector, Finance Minister P Chidambaram is
planning to open these sectors to further competition. Towards this end, duties
will be restructured to make oil companies more efficient and bring down fuel
costs. The need to consolidate the oil sector arises from a gap in supply and
demand. Pointing out that taxes on the sector have to be fuel-neutral and
subsidies transparent, Chidambaram said that "Taxes and subsidies in the
sector are in conflict with each other," and that adding any departure from
fuel-neutral taxes and transparent subsidies should be avoided as far as
possible (Source: Press Trust of India Reports). The Finance Ministry is also
working on restructuring petroleum duties.
An important agreement has been struck with Iran in January to import at least 5
million tonnes of natural gas a year over the next 25 years, a contract worth at
least US$40bn and brings India into developing two Iranian oil fields and a gas
field. This is another indication, following recent reports of discussions with
Russia on the same topic, of India seeking internationally to consolidate energy
supplies (and competing with China in so doing), in order to underpin the
anticipated growth in the economy. It is also significant that Iran is right now
the focus of international disapproval about the development of nuclear power
and it is possible that India will at some time be challenged on this supply and
development deal, in the event that the US is successful in having the Security
Council place sanctions on Iran.
In other financial news, the IMF expressed concern over high levels of fiscal
deficit in India and urged the government to carry out far reaching fiscal
reforms to sustain high economic growth. International Monetary Fund's First
Deputy Managing Director Anne O Krueger suggested that the Indian government
needs to improve the Tax-GDP ratio by pushing up revenues and phasing out tax
exemptions. Krueger said that "Fiscal deficit is an area of concern that
the government needs to give more attention to. In India, Tax-GDP ratio is very
low due to lot of exemptions in personal income tax. The tax base needs to be
broadened." In addition, measures need to be taken on both fronts; revenue
and expenditure. Also, interest rates should be managed effectively and
allocation of resources should be done in a better way for higher economic
growth.
The issues that were of critical importance and require to be discussed in the
upcoming budget are fiscal deficit management, expenditure control, public
sector resource management and rationalization of the tax structure.
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AVIATION
India opens up London routes to private airlines
The Indian government broke with tradition recently when it gave the country's
private airlines the right to compete with the state-owned flag carrier on
flights to London - the country's busiest route, the Financial Times reported on
February 2nd.
The move, likely to be followed later this year by similar concessions to
private airlines on direct lights to the US, marks a watershed for air
travellers to India.
Until now, India's international aviation policy had been guided by the
interests of Air India and Indian Airlines, the state-owned carriers, rather
than those of the consumer. But Praful Patel, aviation minister, said his
priority was to improve life for the air traveller in India.
"This will dramatically improve the level of service for Indians travelling
to London and it will reduce fares as well," said Dinesh Hashim, a
Delhi-based Aviation analyst.
"It is something of a breakthrough for the Indian consumer."
Under the recent announcement, Jet Airways, India's most vibrant private
domestic airline, will be permitted to fly daily to London's Heathrow airport
from late March. Air Sahara, another private carrier, will fly twice weekly to
Gatwick, London.
Air India, which is in financial trouble and has one of the oldest fleets in the
world, is allotted an extra three flights a week to Birmingham in the Midlands
of the UK. But there is doubt as to whether it has the capacity to fill the
three extra London slots its has been awarded in addition to its current 18
flights a week.
"If Air India can't fill these slots they will go back into the pool, which
means the private airlines could get even more UK flights," said an
official.
The move comes in advance of what officials expect to be conclusive talks with
US counterparts in the next three months on a bilateral air agreement that will
expand the number of direct flights between America and India, one of the
country's most poorly serves routes.
Jet Airways, which is owned by Indian entrepreneur, Naresh Goyal, and is
expected to launch its initial public offering on the Indian equity markets
within three months, has expressed strong interest in operating a long-haul
route to the US. "This is the way reforms happen in India," said Kapil
Kaul, chief executive of the Centre for Asia Pacific Aviation in New Delhi.
"Instead of reforming the state enterprises, you let in private
competition. It is politically less controversial. But it works."
India's Congress-led government has no plans to privatise the state-owned
airlines.
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CREDIT RATINGS
S&P seeks controlling stake in India ratings firm
Global ratings concern Standard & Poor's plans to buy a controlling stake in
India's largest rating company, Crisil Ltd, for more than US$50m, or over
€38m, in a bid to profit from the subcontinent's growing debt market, the Wall
Street Journal Europe reported on February 16th.
Standard & Poor's announced an open offer to buy a 42% to 56% stake in
Crisil for 680 rupees (€12.01) per share, a 20% premium on Crisil's share
price recently. If S&P gets the maximum number of shares for which it bids,
the stake will cost about US$55m.
The bid has to be approved by the Indian government. Then S&P, which already
holds more than 9% of Crisil, will proceed only if it can obtain a 51% stake
through the offer. The regulatory approval and open-offer process will take
about three months, analysts said.
The acquisition seems to be good news for both companies, analysts said. S&P
will gain greater access to India's booming debt market while it helps
strengthen Crisil with its international brand name as well as additional
capital and expertise.
"There is a huge potential in the ratings business (in India), as it has
just started to pick up in the country," said Anurag Jain, research
associate at SSKI Securities Pvt Ltd in Bombay. "The percentage of Indian
companies that get rated today is less than 1%, but as more come to the debt
market, they have to have ratings."
Crisil shares surged on the news, rising the maximum permissible 20% to 680.25
rupees. With the market price above the offer price, S&P may have to raise
its bid to attract enough sellers to get a majority stake, analysts said.
"If the price is going to be at this level, then no one will be interested
in selling," said Gurunath Mudlapur, head of research at Khandwala
Securities Ltd in Bombay. "They will ask for a higher price."
Standard & Poor's is likely to raise the offer, he said, because Crisil is
in a growing industry. Its profit will grow about 20% to 220m rupees for the
year ending March 31st, giving it a reasonable price ration of around 19, Mr
Mudlapur said.
S&P also may be planning to use Crisil's people and its national network in
India to outsource some analysis and index work, analysts said.
"Outsourcing in the future is another way they can benefit," said Mr
Mudlapur, referring to S&P. "They can outsource their global research
and reduce costs."
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ENERGY
India offers Pakistan pipeline talks
New Delhi offered direct talks with Islamabad recently on a controversial
multi-billion dollar pipeline that would transport Iran's large gas reserves to
India across Pakistan, the Financial Times reported on February 11th.
New Delhi's move, driven by its search for energy security at a tome when demand
for gas is expected to quadruple in the next two decades, could result in a
breakthrough for a project long vetoed by sceptics in the Indian capital.
Recently, Mani Shankar Aiyar, India's oil minister, received cabinet approval to
pursue the pipeline proposal without attaching conditions to the talks.
Previously India had linked such talks to its demand that Pakistan reciprocate
New Delhi's granting of Most Favoured Nation trade status and that Indian goods
be given transit rights across Pakistan to Afghanistan.
"We now have full cabinet approval and the backing of the prime minister,
Manmohan Singh, to explore this pipeline," Mr Aiyar said. "What ever
we can do to expedite this will be done."
Pakistan, which would earn hundreds of millions of dollars a year in transit
fees and help meet its own growing demand for gas, welcomed the offer. "If
the Indians are ready to move ahead without conditions, we are ready as
well," said Sheikh Rasheed Ahmed, minister of information.
Mr Aiyar said the plan was to negotiate an agreement between New Delhi and
Tehran for gas to be delivered to India at the India-Pakistan border. Then Iran
would negotiate a separate but "back-to-back" pipeline agreement with
Pakistan.
There would be trilateral talks to agree on the necessary sovereign guarantees
that the construction companies and other pipeline contractors would require.
Indian and Iranian energy officials will discuss the gas supply deal in the near
future.
"Having separate agreements is the best way to ring-fence the pipeline form
broader peace talks with Pakistan," said Mr Aiyar. However, there are still
many sceptics in New Delhi. They worry the pipeline could be held hostage to
India's relations with Pakistan and become a target for Islamist terrorists.
There are also concerns in Pakistan about unrest in its province of Baluchistan,
which borders Iran. There have been several attacks on Pakistan's own pipelines
in recent months by Baluchi tribesmen, partly in protest at low royalty fees.
The prime minister's office in Islamabad said it would shortly bring out a
package of incentives to help quell tribal disaffection.
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EXPORTS
India's exports surge 33.2% despite strengthening Rupee
Despite a strengthening rupee, India's merchandise exports in January rose 33.2%
form a year earlier to US$6.72bn (€5.22bn), fuelled by global demand for
traditional staples such as textiles, gems and jewellery and for metals and
engineering goods, the Wall Street Journal Europe reported.
Government data released recently showed that for the 10 months through January,
exports rose 25.6%, from a year earlier to US$60.75bn, outpacing the 16% growth
target set for the year ending March 31 and putting India on track to achieve
its target of US$75bn in exports for the year.
The government gave no reasons for the rise in exports.
Despite the gain in exports, the trade gap widened because of high crude prices
as well as heavy domestic investment and consumption. In January, imports rose
40.4% to US$9.6bn, while the trade deficit widened 61.2% to US$2.87bn from
US$1.78bn a year earlier.
Abheek Barau, chief economist at ABN Amro Bank, said exports are receiving a
boost form higher global prices for metals. India's exports include iron ore,
aluminium, copper and steel.
"Higher metal prices mean exports have grown in terms of value rather than
volumes," Mr Barau said.
The composition of Indian exports is shifting from raw materials and
low-value-added items to technology driven manufactured products such as auto
components, pharmaceuticals and engineering goods such as textile machinery,
said Mr Barau and Mnaju Ghodke, an economist with engineering company Larsen
& Toubro Ltd.
India's exports are dominated by gems and jewellery, textiles and ready-made
garments.
Commerce and Industry Minister, Kamal Nath, addressing lawmakers recently, said
India has sustained its export growth despite local currency gains and high fuel
prices that challenged industry's competitiveness.
"With this, the country is clearly headed toward doubling its exports to
US$150bn by 2009," he said.
The rupee has gained almost 6% against the dollar in the past six months on
strong stock-related capital inflows and the US currency's global weakness.
Analysts said the growth momentum may continue in coming months because of
strong global demand.
"The export-growth story shows that rupee gains are no longer a matter of
concern," Ms Ghodke said.
She said exports from India usually tend to pick up pace toward the end of the
fiscal year, a factor reflected in January's growth. She said exports may rise
more than 20% in the next six months.
The trade deficit, meanwhile, expanded 67.45% from a year earlier to US$22.69bn
in the April-January period, as imports rose 34.72% to US$83.44bn.
Oil imports surged 40.14% to US$23.46bn for April through to January because of
record-high crude prices. India imports 70% of its oil needs.
Non oil imports rose 32.71% to US$59.98bn, reflecting the buoyant demand in the
manufacturing sector.
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